Most people at some point in their lives will have an event that interrupts their income and finances. It could be that you are made redundant from a job, or are sick, or are impacted by a natural disaster.
Sometimes people take on too much debt, and find they are in a position where they can no longer afford all their financial commitments.
This article aims to give some advice on how to manage these situations if it happens to you.*
Contact your lender
This is the most obvious and sensible thing to do, however due to various reasons it is often difficult for people to reach out when in trouble.
Most lenders have a dedicated hardship assistance team who are well trained to understand your situation, and help you find a solution in an understanding and empathic way. All consumer loans in Australia are regulated under the National Consumer Credit Protection Act (NCCP) which has hardship provisions to ensure you are treated fairly.
Lenders are usually able to temporarily reduce or suspend repayments and can sometimes vary your loan to capitalise missed payments or extend the term to make repayments more manageable.
Consider switching to interest only
If your loan is principal and interest payments, your lender might be okay with you switching to interest only for a period. This will reduce your monthly commitment, freeing up some of your mortgage repayment so it can be used for other expenses. There are pros and cons to this, and you should speak to your lender or broker to understand.
Consolidation of debts
If you have various credit cards and personal loans it may be worth considering consolidation into your home loan. This will likely reduce your overall monthly repayments (often considerably), and most people find it easier to manage one loan repayment a month rather than multiple. Speak to your lender or broker to find out if this is possible and the right option in your circumstances.
Sell or downsize
Obviously, this is a pretty drastic measure, however something to consider should your situation be that your ability to pay your debts is permanently reduced. Particularly if you have an investment property, it might be wise and relatively easy to sell and clear your debts and re-enter the property market once your circumstances have improved.
Speak to a financial counsellor
If your situation is serious or more long term you may want to speak to a financial counsellor. A counsellor can speak to your creditors on your behalf and can reduce some of the anxiety that comes with financial hardship. Counsellors to do not charge for their services and there are bodies in each state of Australia. A counsellor may also explore other options with you such as Part IX, Part X, and bankruptcy.
Seek additional support through Lifeline or another trusted crisis support service
Being unable to pay your mortgage can be incredibly stressful for both you and your family. Organisations such as Lifeline (phone 13 11 14) can provide mental health support and emotional assistance
* All the advice in this article is intended to be general. The advice provided does not make consideration of your specific financial situation, your objectives, or your needs. You must consider the appropriateness of the advice before taking any action.